The stars are aligned – Canada’s opportunity for climate leadership

Background: Canada’s renewed climate pledge

At the COP21 climate summit in Paris, Canada’s newly elected prime minister Justin Trudeau said ”Canada is back”, and Canada was one of the most vocal industrialized countries in endorsing the call from small island states to hold global warming to no more than 1.5 degrees Celsius above pre-industrial levels.

A few months later, the Canadian government is busy developing the national policies, targets and economic incentives to deliver on its electoral promises and the expectations that sprung from the Paris summit. In this report, we strive to assess the progress and try to better understand the main drivers, potential goal conflicts and probable outcomes, focusing on transport – the make or break factor for the climate targets – and the price on carbon. While we by no means strive to be expert on the Canadian climate policy, we hope to be able to establish material that is useable in a European or indeed Swedish context – a sort of beginner’s guide to Canada’s climate policy development.

The Canadian climate change policies and practices are particularly interesting for three reasons:

The world is listening. Because of the high profile at the COP, Canada is now seen as a role model that many look to for a leading example to learn from.

The US is next door. While Canada’s emissions are not huge, the emissions from the neigboring USA are, and the two countries have increasingly been aligning their policies, emissions standards, carbon markets etc. For anyone interested in American climate policy should be sure to know what is happening in Canada.

The fight is within. Canada is a world leader in the production of tar sands oil, which represents a large and potentially increasing share of the country’s emissions – and means that the outcome of any national climate agreement may be seen as a role model for other countries with strong internal conflict.

In addition, specifically for Sweden, Finland and Norway, Canada has a similar economy to ours, as well as similar conditions in terms of cold climate, long distances, low population density and a resource intensive economy. All told, Canada – and not only Prime Minister Trudeau – certanly merits a closer look, with lessons to be learnt and strong opportunities for furthened cooperation.

Mattias Goldmann
CEO, Fores, March 2016

This report is the result of a study trip to Canada partially financed by the Canadian embassy in Sweden, to whom we are grateful. They have not influenced the content.

Timeline

In recent years, Canada has felt the effects of climate change and is starting to see the costs of adapting to a changing climate. In July 2013, 125 mm of rain fell in just a few hours over parts of Ontario, leading to flooding and property damage estimated at $940 million in Toronto alone ― the most expensive natural disaster in Ontario’s history. In 2012, March in Ontario was so warm it led to early blooming of apple trees, followed by a severe frost in May that caused the loss of 80 % of the apple crop. The effects on infrastructure are equally apparent and costly: roads that buckle in severe heat, water mains that overflow in severe rain, hydro lines coated with heavy ice that snap and leave tens of thousands of families and businesses without power. By 2050, mean summer temperature could rise 3.5°C, up to 9°C in winter, totally changing the basis for the Canadian economy. The National Round Table on the Environment and the Economy estimates that the costs of climate change in Canada will rise from about $5 billion annually in 2020 to between $21 and $43 billion by 2050.

The rising costs of climate change, and the increased awareness that the changes lead to, wer part of the reason that the Canadian Labour party campaigned for a new, tougher stance on climate. Shortly after its landslide victory in the federal elections, the new Prime Minister Justin Trudeau was applauded at the UN climate summit COP21 in Paris, proclaiming ”Canada is back”. Post Paris, the Canadian federal government has started the work towards reaching a detailed national climate strategy with the provinces. Four working groups are to be launched and start working by April 2016 and deliver proposals by September, with an expected political outcome by early 2017, with the possibility of including some of the proposals in the federal budget for 2017. The working groups are:

Mitigation: How to meet and/or strenghten Canada’s emissions target

Adaptation: How to better adapt to a changing climate

Carbon pricing, including cap-and-trade, carbon price mechanisms

Cleantechinnovation and jobs

The exact composition of the groups is not yet known, nor how the civil society, experts and academia will be included. As can be easily understood, the expectations are very high on what these groups will achieve, but the very wide mandate that they have may mean that they need to focus on some areas of particular urgency or long-term relevance. It may also lead to new committees, including potentially one on energy policy – Canada is the only OECD country without a national energy plan. Any change of climate targets must be approived by both houses of the Parliament, and – perhaps more crucially – that the provinces, even when they have the same political majority as the federal government, are usually lukewarm towards federal initiatives to regulate them.

Preceding the climate working groups, for the first time ever the Prime Minister and all First Ministers of the provinces in early 2016 reached a climate agreement, the Vancouver Declaration on clean growth and climate change, which states that ”Canada stands at the threshold of building our clean growth economy. This transition will create a strong and diverse economy, create new jobs and improve our quality of life, as innovations in steam power, electricity and computing have done before. We will grow our economy while reducing emissions.” In addition to reiterating the climate targets, it calls for doubling government investment in clean energy research and development over the next five years, and spurring private sector investment in clean technology, advancing the electrification of vehicle transportation and investing in clean energy solutions to help get Indigenous, remote and northern communities off diesel .

At the same time, Canada is moving towards a North American agreement on energy and environmental issues, which may materialize at the mid-year North American Summit, when Mexico is expected to join the recently presented Canada-USA methane emissions agreement.

As part of the plan to become a ”champion of clean growth”, over the next five years the government in its 2016 federal budget revealed plans to spend CAD 5bn greening the country’s infrastructure and CAD 1.75bn on developing a clean economy and protecting the environment. This includes:

Emissions today and tomorrow

”The future markets, the technologies, the energy system will be low-carbon… Whether you build the next pipeline or not… The economy of Canada will not be centered around a fossil-fuel based exctractive economy”. Achim Steiner, Executive Director of UNEP, January 2016

Canada’s current national climate target is to reduce emissions by 30 % 2005-2030, and 80% to 2050. There is, as think tanks and NGOs point out, no short-term target for 2025, even though this would be in line with the targets in the USA. Setting such a target was approved by the lower house but rejected by the senate. There is also no interim target for 2040, and no credible pathway to reach the 2050 target. In the electoral campaign in 2015, the Liberals called for increased ambitions, which is to be discussed in the climate groups presented above. In meetings with officials from the city of Toronto, it was suggested that since they overachieved on the 1990-2012 target, some of those emissions reductions could be carried over to help ease the burden of future emissions reductions, though environmental organizations are strongly against this and no credible way of doing this ”carry over” has been presented.

While the emissions have gone down since 1990, since the current base year 2005 reductions have stalled, largely due to an increase in the production of oil and increased emissions in the transport sector. Average emissions per capita are estimated at 20.7 tCO2, which in order to meet the national target, should be reduced to 12.6 tCO2 by 2030, just over double the pace of emissions reductions per year compared to the previous 15 years.

As the chart below shows, most provinces – in this case Ontario, have combined increased GDP with reduced or stable GHG emissions.

About 75 % of Canada’s electricity is low-emission, including 59 % from hydroelectric, 15 % from nuclear and about one % from wind, solar and bio-energy. Canada is 8th in the global clean energy rating, though on a national level investment in renewable energy droped by 46 % in in 2015 compared to the year before. The reason, according to Clean Energy Canada, is that “Canada has a patchwork of provincial renewable power policies […] The country has also suffered from a lack of overarching federal pollcy support: pipelines trumped powerlines”. However, it also states “The end of 2015 was marked by a flurry of changes in Canada’s clean energy landscape.”

The need for cleaner energy is addressed in the Ontario’s Climate Summit the first-ever Pan-American Climate Action Statement, signed by Ontario and 22 states, regions and municipalities in July 2015. It is further developed in the 2016, Joint Clean Technology Cooperation Agreement between the federal government and China, which includes sharing best practices, technology demonstrations and enterprise collaboration. It is met by the Canadian Climate Change and Emissions Management Corporation (CCEMC) and Sustainable Development Technology Canada (SDTC) which fund Canadian innovators producing energy efficiency and conservation; carbon dioxide utilization, methane reduction, or cleaner energy production and usage projects.

In March 2016, Canada and the US, the world’s second and fourth largest methane emitters, jointly pledged to reduce oil and gas methane emissions 40-45 % below 2012 levels by 2025, with an invitation to Mexico to join. Canada, the US and Mexico have already agreed to cooperate on the development of reliable, resilient and low-carbon electricity grids; innovation of clean energy technologies; energy efficiency for equipment, appliances, industries and buildings; carbon capture, use and storage (CCUS); climate change adaptation and resilience; and reducing emissions from the oil and gas sector, including methane and black carbon. The cost for reaching the methane target is estimated at only C$2.76/tonne CO2e. At the same time, Obama and Trudeau said they would finalise their long-term emissions reductions strategies presented at Paris by year’s end, and that they would lobby other G20 countries to do the same.

Several suggestions for carbon targets and measures have been presented, including the British Columbia Climate Leadership Team report which proposesa legislated 2030 target of 40 % GHG reduction below 2007 levels, with 30 % reductions for the transportation sector, 30% for the industrial sector and 50 % for the built environment. It also recommends to increase the carbon tax by $10/yr commencing in July 2018.

As a federal state, the provinces, with large differences, develop most of the climate policies. In terms of reducing emissions, the most successful policy has been Ontario’s ban on coal-fired power, which reduced annual emissions by 25 megatonnes, ten times the impact that federal coal regulations are projected to achieve in 2020. BC’s carbon tax may be the one that indirectly leads to the largest emissions reductions since it has been inspiring other provinces and may be part of the foundation for a federal carbon tax. The province Alberta, the centre for the tar sands oil industry, aims for something that approaches carbon neutral growth, with reduced emissions from all sectors except the oilsands, which in just a few years is projected to emit more than any province other than Alberta or Ontario.

Several provinces have recently had a change of government, often from Conservatives to Liberals, with a pledge of increased climate ambitions. The carbon pricing is expected to help phase ot coal power across the country, which Ontario has already done and Alberta is scheduled to do by 2030. It will also be beneficial to new renewables, mainly wind, in addition to the large scale hydro that is already an important component of the electricity mix.

It is harder to see what measures will be implemented that will really make a difference for Alberta’s tar sands oil, which alone represents around 20 % of Canada’s total carbon emissions. The previous government only made timid attempts to reduce these emissions, and were often portraied as being very close to the industry. Many analysts predict difficult times for the tar sands strictly based on the oil pricing; with current oil prices – and Western Canadian Select oil is roughly half of the brent crude price – it is hardly profitable, and if prices go up, shale oil and other sources come back and may outcompete the Canadian production.

Carbon pricing

Federal level

A Canadian price on carbon has been contemplated since 1989, and was promised by new government both in the election campaign and upon entering office. Recently, the wording has been ”carbon pricing mechanism”, which some think tanks and NGOs interpret as an opening to include a wide range of measures that may be seen as equivalent to carbon pricing, but may be more palatable to opponents of an actual federal tax or cap-and-trade system. These measures may include funding for public transport, CCS, vehicle emissions standards, and other initiatives, though with this wide definition it becomes hard to see the difference between these and other climate, transport and energy measures.

The change of wording may be due to some provinces not wanting a carbon price, for the fear that it may harm the local industry, even though studies indicate that only a small number of industries would face competitiveness concerns resulting from comparatively higher carbon prices, and that they could easily be given special treatment. Others may be against a federal carbon tax on the grounds that these have already been introduced at provincial level. In the study The Way Forward, the Climate commission proposes carbon pricing along with other policies to reach the climate targets, which has in other reports been narrowed down to building codes, coal phase-outs and vehicle emission standards.
A role for the federal government could be to establish minimum, floor pricing and sectorial coverage, meaning that the federal tax does not apply in provinces that have more stringent regulations on their own. It could also set standards for how the revenue is used, addressing concerns from the conservative media.

In practise this would mean that the legislation would become more similar across Canada, which would be beneficial both to the climate and the business sector. This will help reduce emissions but hardly suffices for the 2030 climate target to be met.

Carbon pricing in the provinces

Since several years, British Columbia has a carbon price of CAD30 per ton, while Alberta is introducing a carbon price of CAD20. Quebec has a cap-and-trade-system, with a carbon price range of $15-20, while Ontario and Manutoba are expected to launch similar systems in 2017. Soon, Saskatchewan, the Atlantic Provinces and the territories may be the only provinces without carbon pricing. In addition to these regulated efforts, there has been a fairly vibrant voluntary market in some provinces, which has been used to help fund public transport and renewable energy, though it has recently been declining.

Thus, more than two thirds of the Canadian population will soon be covered by some sort of price on carbon, even before a federal initiative.

All provincial carbon legislation has partial exemptions for emissions-intensive, export-oriented industries, like oil sands, though the designs are different. As an example, in Ontario all companies covered by the cap and trade are to get free allocation of emissions rights for the first period, up to the Ontario average per sector, while individuals will pay for emissions related to heating and transport fuels. There is to be a 4.6 % reduction of allowances per year until 2020, followed by a progress-based revision to keep emissions in line with the overall climate targets. By 2018, the system is to be linked to the Western Climate Initiative, California and Quebec, allowing up to 20% offset from there. Since WCI-credits are expected to be cheaper, a fifth of the emissions reductions from Ontario may actually happen in California, potentially sparking a debate that the money should be spent in Canada.

Alberta’s carbon tax, to be introduced in 2017, is to generate around CAD 3 billion annually, though this is to be used in a “investment plan that will fully recycle revenues […] into renewable energy, innovation, public transit and other measures that will reduce tha carbon intensity of our economy” . Similary, the Ontario carbon credit system is expected to generate around 1.8 billion CAD annually, which is to be spent on emissions reducing projects, with an annual report on how the money is spent. It remains to be seen, however, how independent from the government the overseeing body for this function will really be. Some point at the Toronto Atmospheric Fund as an example on how the funds could be allocated; since more than 20 years it funds climate related projects, including reasearch, pilot project and outreach. Even though it is a municipal body, it has its own board, and functions indepdendently from the incumbent’s wishes, which is part of the reason Toronto was a global finalist in the C40 climate municipality challenge;

”It has returned fairly substantial savings to the city budget through energy savings, and has in the meantime invested in dozens of innovative projects, many of which scaled up to be real businesses that contribute to fighting climate change in a meaningful way: the world’s largest deep-water cooling system; the ride-share service Autoshare; an energy-efficiency retrofit company for privately owned buildings. The city and the nominators credit the fund with helping Toronto achieve a 25 % reduction in greenhouse gas emissions since 1990.”

Using such a body, but potentially widening its mandate to include health and equity, may also help temper feelings among conservatives and in the media, that the carbon mechanism is just a way of raising taxes or improving the budget – a suspicion that is understandable given the region’s substantial budget deficit.

Transport

The transport sector will decide whether or not Canada will meet its climate targets – both on a federal level and for the provinces. At 35 % , transportation emissions are the single-largest source of emissions in Ontario, 37 % in British Columbia, with similar figures for most provinces except Alberta. On a municipal level, the situation is similar; Toronto’s transport emissions rose 15% 1990-2012, while total emissions were down 24%. Indeed, ”Transportation is the one area in which Toronto has failed to make progress i absolute terms”

As the chart above indicates, transport is the main contributer to GHG emissions; in this case in Ontario but also on a national level.

Incentive for sustainable transport modes can be federal, provincial or municipal. At the federal level, the new government has emphasized the need for investment in public transport (transit), and is expected to allocate funding for electric vehicles and EV infrastructure.

Passenger vehicles

The CLT recommends Zero Emission Vehicle targets of 10 % of new car sales by 2020; 22.5 % by 2025; and 30 % by 2030, to increase the Low Carbon Fuel Standard to 20 % by 2030, and to include every transport mode except aviation fuel. Furthermore, a revenue neutral sales tax should be introduced for all vehicles based on grams of CO2 per km, similar to many European vehicle registration systems.

Canadian research suggests that vehicle standards are the optimal policy for increasing sales of greener vehicles, though currently the average sales-weighted fuel efficiency in Canada shows no improvement and is getting worse in some provinces. This is partially due to that of the record 1.9 million new vehicles sold in Canada in 2015, almost 1.2 million were light trucks and SUVs, which have less stringent emissions requirements. Sales of the most fuel efficent cars incuding hybrids decreased, and the growth of EV sales has slowed down in Canada, contrary to the global trend. It grew 67% 2013-2014 but only 32 % 2014-2015. Quebec he most plugged-in province, with 46% of the entire Canadian EV market, but British Columbia now leads the country on a per capita basis. The number of cars in use increased by 1.1 million in 2015.

Canada’s vehicle regulations are very aligned with the US, focusing on fuel economy, with an almost 50% reduction in emissions per vehicle per km until 2025. This has been ranked as the most efficient federal policy measure, with housing and industry energy efficiency and renewable power programs, further vehicle standards and regulations for coal-fired power also in the top 10.

Several environmental think tanks propose that the Californian emissions-focused regulations should be used as a basis. If 10 % of new car sales were to be electric vehicles by 2020 and 70 % by 2030, it would reduce annual emissions from this sector by 40 %.

Increeased incentives may help greening the fleet, including Ontario’s CAD10 000 grant per plug-in vehicle, with an added 3 000 if the battery capacity is over 16 kWh and 1 000 if the car seats 5 or more. The bonus is capped at 30% of the cars retail price, and reduced for cars selling at more than CAD75 000. There is also a 500 bonus for home chargers, with the same amount for the installment, with additional provincial incentives. Ontario had a ”feebate” for cars similar to the French bonus-malus taxation, it was scrapped but may make a come back under the new administration. Testbeds for autonomous EVs are being developed, with Stratford Ontario as a frontrunner – it may want to be known as more than Justin Beaber’s hometown.

Given Canada’s long distances, the dependency on road transport, the current vehicle fleet and the slow uptake of EVs, increasing the use of biofuels may be a relevant way of reducing the emissions from the transport sector. Currently biofuels are used as low blending biodiesel in diesel and ethanol in petrol, with a federal 2 % target for biodiesel and 5 % for ethanol. Several provinces have targets that go beyond this, though they may, as Ontario’s, regulate the GHG reduction rather than the %age of biofuels. Instead of leading to a switch to renewable fuels, it can incentivise switching from Canadian high carbon-fossil fuels to other sources of petrol and diesel with a smaller footprint.

It is not widely believed that the carbon pricing will be sufficient to speed up a change to biofuels; the taxation levels are too low meaning that increased blending mandates are seen by the industry as the fastest way forward. However, calculations done by Ecofiscal imply that the low blending is an expensive way of reducing emissions, with costs at above CAD100/ton, though side benefits such as job creation are not factored in. A working group is now developing policies to help reduce the cost of reaching a low carbon transport sector. Suggestions may include increased taxation on fossil fuels and road usage, incentives for advanced biofuels with very low carbon footprints, and vehicle standards.

Even though biodiesel and ethanol is produced in Canada, including cellulosic ethanol, differences in incentives makes it more profitable to export it to the US, while biodiesel from the US is imported to Canada. Very few opportunities exist to buy B100 biodiesel or ethanol E85, and at current prices is it substantially more expensive than the fossil equivalent, meaning that essentially only cars used by the authorities themselves run on biofuels.

Biogas for passenger transport does not exist in Canada, and the biogas companies we met focus on producing electricity for the grid from biogas, taking advantage of long-term feed-in tariff contracts.
Public transport, commuting and bikes

In the election, the Liberal party campaigned on a promise of a CAD20 billion increase in subsidies for public transport (transit) over ten years. This is seen as badly needed in some provinces and major cities, as for instance Toronto’s public transport is entirely funded through property taxes and fares, with no contribution from the province or the city budget. The lack of funding has, however, led to innovative funding, including the first Canadian provincial green bond, used by Ontario to fund the Eglinton Crosstown Light Rail Transit Line.

In Toronto, 96 major businesses and property managers, representing 331,000 commuters, participated in Smart Commute a program, which led to 82% of surveyed employees commuting by sustainable modes of transportation. More than 50,000 people in the GTA take advantage of car-sharing operations, with significantly reduced emissions and vehicle ownership. The largest company, Enterprise, has more than 130 offices in the Greater Toronto Area alone.
Several municipalities are working to increase the share of non-motorised transports. Toronto has 1000 Bike Share bikes and 848 km bike network, with similar systems in Montreal and Ottawa, and soon in Vancouver with 1500 bikes and ”sanitized helmets” at 150 docking stations around town.

Road pricing

Congestion charges or road pricing may reduce transport emissions, and detailed calculations show that it may be a cost effective way of doing so. According to Pembina, a kilometre-based pricing scenario for highways in the Greater Toronto Area (GTA) of $0.14/km would reduce traffic by 16 % while at the same time driver fuel and vehicle maintenance costs and travel time are reduced by $4.09 and 15 minutes, respectively.

The road pricing may also be needed to finance investments that have been put forward as ways to reduce GHG emissions. For instance, the Toronto Climate Change Action Plan, unanimously endorsed by the City Council, and the Big Move regional transit plan, ranked as number six in the list of Canada’s 10 most effective climate policies for meeting the climate targets, are about CAD 18 billion short, before operating and maintenance costs.

However, congestion charging was defeated in a Vancouver poll and there doesn’t seem to be any political will to push for it in other cities, even though in Toronto the Registered Nurses of Ontario and the Toronto Region Board of Trade support it. Toll roads exist, but mainly as a way to pay for newly built roads. High Occupancy Lanes are used accross the country to help reduce congestion, and are sometimes made available also for drivers of EVs.

Trains – passenger and freight

Passenger trains are reasonably well developed for regional travel in metropolitan areas, but has little impact on long-range travel. ”Delays are a fact of life when you take long-haul passenger trains in Canada. As the Canadian crosses the country, it is often shunted aside, giving way to more-profitable freight trains”. Much of the tracks in Northern Canada were constructed in the early 20th century on permafrost, and lack of maintenance slow down the trains. ”If it is a hot day, they move even more slowly”. ”Pack patience and a sense of adventure when taking the train”.

For freight, more stringent vehicle emissions standards are being discussed, though it ie seen as difficult to introduce if it is not matched on the USA market.

While the %age of freight carried by rail may look impressive at first sight – it is almost double that of Sweden, for instance – a large part is oil that is transported by rail due to the lack of cross-country pipelines, while other goods are increasingly transported by road. The pipeline discussion is, as indicated by Keystone XL, very infected, and it is hard to see any government being interested in pursuing the issue.

Meetings

This fact-finding report is based on a study trip in Canada in March 2016, with meetings including